Ted Boettner: ‘Free market folly in WV

By By Ted Boettner

All too often, public policy debates get couched between those who favor government intervention in the market and those who do not. When it comes to economic issues, the framing is usually that conservatives favor less government or the “free market” while progressives want government solutions and non-market outcomes. This framing is inaccurate. Both conservatives and progressives want government intervention in the market. The key difference is who benefits.

It is important to recognize that the “free market” is like a unicorn. People have an image in mind, but nobody has actually ever seen one.

This is because without substantial government intervention there is no economy. The key inputs into the economy — land, money and labor — are all shaped and sustained through government regulations, rules, investments and a few other factors such as wars, to name a minor example.

As Robert Reich says in his new book Saving Capitalism, “Government doesn’t intrude on the ‘free market.’ It creates the market.”

Reich correctly points out that to have a “free market,” government must make some pretty important decisions about that market: What property can be owned (babies?), what can be traded (votes?), what degree of market power is permissible (monopolies?), what happens when people and corporations can’t pay up (bankruptcy laws), and how to enforce the rules of the game (think subprime mortgage crisis).

In other words, government can no more get out of the business of intervening in the market than the Commissioner of Baseball can stop promulgating the rules of Major League Baseball.

The government plays a large role in almost every sector of our economy today. For example, take health care — which accounts for more than one out of every six dollars spent in our national economy. As health policy expert Robert I. Field pointed out recently, “the role of the public sector in American health care is so pervasive and of such longstanding importance that government can be credited with creating and sustaining health care as it exists today.”

Not only does government pay for more than half of all health care expenditures, it also provides billions each year in basic biomedical research that pharmaceutical manufacturers rely on and a huge tax subsidy for employer-sponsored health coverage.

Another good example is technology — which is a major factor in economic growth. A recent study by the Information Technology & Innovation Foundation explored 22 cases of U.S. technology innovation that stem from federal funding. Many of these applications on our smartphones, including the Google search engine, global positioning systems (GPS) for map navigation, and voice-user interface such as Siri on iPhones, were technologies pioneered by federal investments in research and development. Not to mention the Internet itself.

One example closer to home is the shale gas revolution. Two engineers at the federal Morgantown Energy Research Center (now NETL) patented two early techniques for directional shale drilling that helped pave the way to large-scale shale development.

Now that we know that the “free market” is a myth and that market boundaries are politically constructed (as opposed to scientifically defined), we can have a more meaningful debate about who benefits from public policy decisions.

There are several policies being debated in West Virginia where conservatives and businesses want more intervention by government in the market than what currently exists:

n Take so-called “right-to-work” laws. The central aim of “right-to-work” laws are for government to make it illegal for a union and a business to freely enter into a contract with one another that requires all employees to pay for the benefits they are receiving under any negotiated union contract. This is precisely why Milton Friedman, the godfather of ‘free market economics,’ adamantly opposed “right-to-work” laws. The requirement to pay a union representation fee is a condition of employment, and no one is forcing anyone to work at a job site covered by a collective bargaining agreement.

n How about forced pooling? Here many conservatives and the natural gas industry want to make it legal to allow natural-gas drillers to gain access to minerals beneath land where private property owners have refused to sign leases or cannot be located. This is a clear violation of private property rights, for those that adhere to the mantra of less government.

n Another prime example of government intervention is the state’s current franchise laws that require auto manufacturers to sell new vehicles through local car dealers. During the 2015 Legislative Session, the GOP Legislature refused to allow the car manufacturer Tesla to establish a factory-owned dealership in West Virginia. This would be like passing a law that says Apple computers can only be sold at retailers like Best Buy instead of an Apple Store. As state Senator Mike Romano remarked at the time, “We like the free market when it benefits us, and we take umbrage with it when it doesn’t benefit us.” This is why libertarian outfits like the Mercatus Center rightfully oppose these state franchise laws.

n Broadband deployment is another area where the business community and many conservatives want additional state government intervention. Instead of “letting the market work,” the West Virginia Chamber of Commerce and GOP legislative leadership want taxpayers to spend millions to build broadband infrastructure that will help them expand their businesses. While improving broadband is a laudable goal, it’s a big government solution (and one that I support) that we need to make up for a market failure.

n Did I mention that Charlie Trump, the Republican Judiciary Chairman of the State Senate, wants to float a $2 billion bond to fix the state’s roads?

Instead of asking if public policy should be decided by the “free market” or “big government” we need to ask who benefits from certain policy decisions and how well they help solve our society’s most pressing problems.

Ted Boettner is the executive director of the West Virginia Center on Budget and Policy.

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